Q&A: Calculating your RMD

As you craft your retirement strategy, planning for age 70½ is a must, because that’s when required minimum distributions (RMDs) kick in.

RMDs are more than an IRS requirement; they affect your overall financial plan and impact your tax liability as you will pay ordinary income taxes on the taxable portion of your withdrawal.

What is an RMD?

Your RMD is the minimum amount you must withdraw from your account each year—you cannot keep retirement funds in your account indefinitely. In general, you must start taking withdrawals from your retirement plan accounts in the year you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

Which accounts require RMD?

These minimum distribution rules apply to:

Traditional, SEP, and SIMPLE IRAs.

403(b), 401(k), and 457(b) plans.

Profit sharing plans.

Other defined contribution plans.

When do RMDs start?

Generally, your entire RMD must be taken by December 31 of each year, either in a lump sum or installments. If you are taking RMDs for the first time, you may delay withdrawing as follows:

For IRAs (including SEP and SIMPLE IRAs)—by April 1 of the year following the calendar year in which you reach age 70½ regardless of employment.

For 401(k), profit-sharing, 403(b), or other defined contribution plans—generally by April 1 following the later of the calendar year in which you reach age 70½ OR retire.

However, if you delay, you will have to take two minimum distributions during that calendar year. Your investment provider may process first-year delayed RMDs prior to the April 1 deadline.

When do I turn 70½ as defined by the IRS?

You reach age 70½ on the date that is six calendar months after your 70th birthday.

Example 1: You are retired and your 70th birthday was June 30, 2017. You reached age 70½ on December 30, 2017. You must take your first RMD (for 2017) by April 1, 2018.

Example 2: You are retired and you reached age 70½ on January 1, 2018. You do not have an RMD for 2017. You must take your first RMD (for 2018) by April 1, 2019.

How is your RMD calculated?

The RMD is calculated by dividing your account balance on December 31 of the previous year by the distribution factor from the IRS Uniform Lifetime table. A separate table is used if the sole beneficiary is the owner’s spouse who is ten or more years younger than the owner.

Who calculates the amount of the RMD?

Member Benefits will assist you in calculating your RMD. Each year we will notify you of the requirement to withdraw. However, the IRA or retirement plan account owner is ultimately responsible for calculating the amount of the RMD.

What are the consequences for failing to take an RMD?

If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.

What if I have multiple accounts?

An IRA owner must calculate the RMD separately for each IRA he or she owns but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) account owner must calculate the RMD separately for each 403(b) account that he or she owns but can take the total amount from one or more of the 403(b) accounts if those accounts are for the same employer. Taking money from an IRA account does not go toward satisfying the RMD for a 403(b) account (and vice-versa).

RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans, have to be taken separately from each of those plan accounts.

Inherited accounts and RMD

For the year of the account owner’s death, the beneficiary of the account must take the RMD the account owner would have received. For the year following the owner’s death, the RMD will depend on the identity of the designated beneficiary.

Refer to the IRS Web site or consult with your financial planner for clarification in these situations.

What are some RMD reinvestment options?

If you do not need the money, there are some options for either reinvestment or distribution that you may want to consider.

Non-retirement investment accounts. Member Benefits may offer this option in the future; watch for updates.

Gifts to children or grandchildren could be in the form of 529 college funds.

A charitable contribution from a Traditional IRA can be issued directly to a qualified charity. The amount of the Qualified Charitable Distribution will not be included in your taxable income. It may be helpful for people who have a Medicare penalty because of higher income or who can no longer itemize.

A charitable annuity through a university that allows you to retain ownership and draw income while alive but names the university as the beneficiary at your death. The initial investment is considered a deductible charitable contribution.

What should I do when I need to take my first RMD?

In the year you reach age 70½, Member Benefits will send you an RMD notice. Please contact us to assist you in setting up your RMD schedule. This will establish ongoing instructions to process your RMD.

After your initial setup, Member Benefits will send you a notice annually reminding you of the RMD. If you wish to change the initial setup instructions, you will need to contact our office at 1-800-279-4030—we’re happy to assist you.

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